Correlation Between Enel Generacion and Central Puerto

Can any of the company-specific risk be diversified away by investing in both Enel Generacion and Central Puerto at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Enel Generacion and Central Puerto into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Enel Generacion Costanera and Central Puerto SA, you can compare the effects of market volatilities on Enel Generacion and Central Puerto and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Enel Generacion with a short position of Central Puerto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Enel Generacion and Central Puerto.

Diversification Opportunities for Enel Generacion and Central Puerto

0.95

Correlation Coefficient

Enel Generacion  Central Puerto

Almost no diversification

The 3 months correlation between Enel and Central is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Enel Generacion Costanera and Central Puerto SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Puerto SA and Enel Generacion is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Enel Generacion Costanera are associated (or correlated) with Central Puerto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Puerto SA has no effect on the direction of Enel Generacion i.e., Enel Generacion and Central Puerto go up and down completely randomly.

Pair Corralation between Enel Generacion and Central Puerto

Assuming the 90 days trading horizon Enel Generacion Costanera is expected to generate 1.05 times more return on investment than Central Puerto. However, Enel Generacion is 1.05 times more volatile than Central Puerto SA. It trades about 0.37 of its potential returns per unit of risk. Central Puerto SA is currently generating about 0.27 per unit of risk. If you would invest  37,700  in Enel Generacion Costanera on September 12, 2024 and sell it today you would earn a total of  9,500  from holding Enel Generacion Costanera or generate 25.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Enel Generacion Costanera  vs.  Central Puerto SA

Enel Generacion Costanera

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Enel Generacion Costanera are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Enel Generacion sustained solid returns over the last few months and may actually be approaching a breakup point.

Central Puerto SA

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Central Puerto SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Central Puerto sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Enel Generacion and Central Puerto

The main advantage of trading using opposite Enel Generacion and Central Puerto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Enel Generacion position performs unexpectedly, Central Puerto can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Central Puerto will offset losses from the drop in Central Puerto's long position.

The idea behind Enel Generacion Costanera and Central Puerto SA pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.